Nation's Banks Are Well-Capitalized: FDIC's Bair

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The nation's banking system remains generally sound despite the doom and gloom that has dominated some of its biggest names, FDIC Chairman Sheila Bair said Wednesday.

"It was a tough quarter. We knew it was going to be a tough quarter. Banks have some real challenges," Bair said during a CNBC interview. "But I think it needs to be emphasized and re-emphasized these banks are solvent, they're well-capitalized overwhelmingly, and that really is what creditors and depositors seem to be focusing on right now."

Moreover, Bair rejected predictions in some areas that the bank industry as a whole is facing ruin, though she did acknowledge problems. She said 98 percent of all banks are well-capitalized, representing 99 percent of all assets.

"There is a fear factor," she said. "You're seeing that in the stock market, you're seeing that in other places. People don't know how bad the economy is going to get, what the outer limit on these losses could be."

"This is why we need a Troubled Asset Relief Program to get banks lending again so we get out of this self-reinforcing cycle of a deteriorating economy."

See video for full Bair interview.

Of the TARP plan, Bair indicated support for the government creating an aggregating institution--a "bad bank" as some refer to it--that would be a repository for the billions in toxic assets on the balance sheets of the nation's banks.

Dumping the assets would free up lending, something she called critical for the economy.

"The aggregated bank might have an advantage in the sense that it actually moves the assets off the balance sheets, freeing up better lending capacity, which is really the whole public purpose of all these initiatives," she said.

Getting the banking crisis resolved will require patience and determination, something Bair said was emphasized by President Obama in his inauguration speech Tuesday.

"What made us great in the first place was a lot of hard work and diligence and courage and that's what we need right now," she said. "It's going to take time to dig out of this but we will dig out of this. We will right the ship."